This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Financial Reform Bill Looks Like Game-Changer

Stocks in this article: BAC C GS JPM MS FNM FRE

WASHINGTON ( TheStreet) -- If Wall Street had become a high-flying Las Vegas casino -- as several lawmakers recently put it -- it's about to become a little old lady buying lottery tickets.

It took more than 20 hours of wrangling after many more weeks of bickering, but finreg finally passed around 6 a.m. ET on Friday. Some of the harshest elements against big banks were watered down just enough to get a coalition of Wall Street-friendly representatives from New York to pledge their support.

But, overall, the Restoring American Financial Stability Act of 2010 is much harder on big banks than anyone had suspected at the start.

In a note sent to clients just a couple of hours after the bill was finalized, FBR analysts sounded cautiously optimistic. They said finreg was "tougher than hoped for, but not as bad as it looks," but made it clear that the game has changed for banks and for anyone attempting to value their stocks.

"Although the conference committee avoided adopting the worst-case scenario, the impact of this legislation remains difficult to quantify," the analysts wrote.

They expect "short-term relief" for financial stocks, now that the uncertainty of what would be in or out of finreg was removed. However, they remained "cautious" about longer-term implications on stock prices.

Among the more surprising wins for the anti-Wall Street crowd was passage of the Volcker rule. Named after former Fed chief Paul Volcker, the provision will effectively reinstate the Glass-Steagall Act enacted after the Great Depression -- something that seemed unthinkable just a few months ago.

The provision will disallow big banks from proprietary trading, or making bets with deposits and other liquid assets for their own profit. As a concession, banks will be allowed to own small stakes in hedge funds and private equity shops, since they can't make such investments on their own.

Another controversial measure regarding derivatives went through as well. The new rule, authored by Sen. Blanche Lincoln, will force banks to house riskier derivatives trading in new, freshly capitalized entities, or simply spin them off.

As a result, there will be no more trading of commodity derivatives or the highly complex vehicles that nearly brought down the financial system at any of the top Wall Street firms. This should have a huge impact on the five big banks that handle 97% of derivatives trading in the United States: JPMorgan Chase (JPM), Citigroup (C), Bank of America (BAC), Goldman Sachs (GS) and Morgan Stanley (MS).

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,030.21 +6.04 0.03%
S&P 500 2,081.88 -0.29 -0.01%
NASDAQ 4,773.4720 +8.0480 0.17%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs